The future of transaction banking? Not a secret

To understand how Transaction Banking (TB) will evolve there's no need for crystal balls.

Just look at what's happening in the procurement departments of the corporate world, and you get a sense of it. I recently attended a presentation showing the likely evolution of the role of a corporate procurement department. It follows a lifecycle roadmap where each step represents the contribution of the department to the overall value of the company. The steps are from a less mature to a fully value-generating contributing office: From “Transaction and support” to “Savings/cost reduction” to “Minimizing Total Cost of Ownership (TCO)” to “Value creator” to “Revenue generator”.

I see in this roadmap the exact paradigm of where TB is going. Today, Transaction Banking sits between the two lifecycle steps of “Transaction and support” and “Savings/cost reduction”. In fact, all the payments and cash management platforms are offered by banks for the purpose of automating financial transactions (i.e., “Transaction and support”) and enabling straight through processing (i.e., “Savings/cost reduction”). At the near horizon we see attempts to integrate cash with payments, with trade finance, with FX. This is the clear sign that TB is slowly—but steadily—moving ahead to cover the full “Minimizing Total Cost of Ownership” of a corporate treasury’s business. That is, transaction banking wants to help corporate treasurers identify the evident and “hidden” costs that make their department’s business inefficient and remove such inefficiencies with optimized flows of information and data exchange. The convergence of cash, payments, trade, and FX bank services does not only eliminate inefficient and redundant processes, therefore reducing the total cost of performance of the treasury department, but also optimizes the department’s business results.

The future steps in the roadmap of “Value creator” and “Revenue generator” are yet to come. However, when a transaction banking unit will offer cash, payments, trade finance, and FX on a single—and most importantly—standards based and multi-bank platform integrated with the corporate ERP and/or treasury management system (TMS), treasury will have total control over its liquidity and cash positions from any bank account and will be able to execute actions and instructions from a single point of command. That will add value to the company because the costs have been removed and optimized and treasury can provide intelligent information acting as the information steward of the Chief Finance Officer. “Revenue generation”—the last step of the journey—will see transaction banking integrated with asset and investment management solutions giving full control over risk and liquidity. The balance of which will  allow the corporate treasury office to determine, from time to time, how and where to best allocate the company’s financial resources to support—in a flexible and resilient way—the company in servicing its most profitable and strategic clients.

I am just starting to scratch the surface and will keep on working on this concept as I trust that—if I’m right—there is an incredible set of practices and procedures from the corporate operations world (e.g., procurement, logistics, distribution, sales) that the finance world can (and should) leverage without having to reinvent the wheel.